Join our community of traders FOR FREE!

  • Learn
  • Improve yourself
  • Get Rewards
Learn More

Key Moments

  • The European Commission is preparing proposals to extend the EU’s carbon border levy to additional products, including car parts and washing machines.
  • Under the draft rules, the EU could apply “default” emissions values if foreign companies are suspected of under-reporting emissions.
  • From 2026, CBAM will begin charging for emissions on covered imports, with companies required to surrender CBAM certificates by September 2027.

Scope of the EU Carbon Border Levy Set to Grow

The European Union plans to widen the scope of its carbon border levy to include more products with high embedded emissions. According to draft European Commission proposals expected on Wednesday, the expansion would cover items such as car parts and washing machines.

Currently, the levy targets a limited range of industrial inputs. However, the carbon border fee forms part of the EU’s Carbon Border Adjustment Mechanism (CBAM), which is described as the world’s first carbon border tariff. Under CBAM, the EU charges for CO2 emissions linked to imports of certain goods, including steel, aluminium, cement and fertilisers.

At present, the system remains in a pilot phase. Nevertheless, it is scheduled to begin imposing financial costs from January.

CBAM is designed to protect European manufacturers from competition originating in jurisdictions with weaker climate rules. However, the policy has drawn criticism from several trading partners, including China, India and South Africa. In response, these countries argue that the measure unfairly targets their economies.

New Products and Sectors Targeted

Despite this external pushback, draft legal texts seen by Reuters on Tuesday suggest the EU intends to reinforce and expand the mechanism. Specifically, the proposals would bring downstream products into scope if they contain a high proportion of steel and aluminium.

As a result, construction materials, power grid components and various types of machinery would fall under the expanded levy.

Moreover, Leon de Graaf, acting president of the “Business for CBAM Coalition” — a grouping of companies and industry associations — expressed support for the planned changes. He said the proposals focus on “products that face the highest risk of carbon leakage.” In this context, carbon leakage refers to the risk that manufacturers relocate abroad to avoid Europe’s strict climate policies.

Clampdown on Emissions Under-reporting

Alongside expanding product coverage, the EU is also preparing measures aimed at preventing attempts by foreign suppliers to circumvent the levy. In particular, the Commission is concerned that some firms could try to minimise their CBAM liabilities by under-reporting emissions.

Under the draft approach, if there is evidence that companies in a specific country are providing inaccurate or incomplete emissions data, the EU could apply “default” emissions values to those imports. Consequently, CBAM costs for affected exporters would increase, according to sources familiar with the proposals.

Meanwhile, the same sources cautioned that the plans could still change before official publication.

Notably, this approach seeks to address a specific concern among EU officials. Some producers — particularly in China — could send lower-carbon products to the EU market while continuing to manufacture higher-carbon goods for other destinations.

As a result, such a strategy would limit exposure to CBAM charges without reducing overall emissions intensity.

A spokesperson for the European Commission declined to comment on the draft proposals.

Implementation Timeline and Market Response

While the levy is set to begin charging importers for embedded emissions from 2026, compliance will be phased in gradually. Therefore, companies will have until September 2027 to purchase and surrender CBAM certificates.

Since Brussels first announced its intention to introduce the carbon border levy in 2021, several major trading partners have responded. For example, China, India and Brazil have begun creating or expanding their own carbon pricing systems, despite maintaining strong criticism of the EU policy.

“They have changed behaviour. That is the success of CBAM in my book already,” said Totis Kotsonis, a partner at law firm Pinsent Masons who advises on trade issues.

Revenue Use and Support for EU Industry

In addition to strengthening CBAM’s environmental and trade objectives, Brussels is also considering how to allocate the revenue it generates. According to the draft plans, 25% of income from the border levy would be used to support European manufacturers facing higher costs.

However, this compensation would not apply universally. Instead, only sectors that commit capital to lower-carbon production technologies would qualify. As a result, financial support would be directly linked to decarbonisation efforts.

Key CBAM Design Features

ElementDetails
Existing covered productsSteel, aluminium, cement, fertilisers
Planned new covered productsCar parts, washing machines, construction products, power grid components, machinery
PhasePilot phase currently; costs to start from January
Charging of emissionsImporters charged for emissions from 2026
Certificate surrender deadlineCompanies must buy and surrender CBAM certificates by September 2027
Enforcement tool for under-reportingUse of “default” emissions values for certain countries’ products
Use of revenues25% earmarked to support EU manufacturers investing in lower-carbon production
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover Forex, Price Action and Social Trading.

Related News

  • Natural gas gains on warm weather forecastsNatural gas gains on warm weather forecasts Natural gas gained for a second consecutive day as weather forecasting models indicated on Sunday above-normal temperatures throughout the next ten days. Gas prices tend to rise during the summer season as increased electricity demand to power […]
  • Macy’s shares close higher on Friday, company to hire additional workers for holiday seasonMacy’s shares close higher on Friday, company to hire additional workers for holiday season Following the strong start of the holiday shopping season, Macy’s Inc (M) on Friday announced plans to hire additional 7 000 temporary workers at its traditional stores in order to service heavy client traffic.Macy’s shares closed […]
  • Nebius Shares Surge After Nvidia’s $2B AI Cloud DealNebius Shares Surge After Nvidia’s $2B AI Cloud Deal Key Moments Nebius Group N.V. (NASDAQ:NBIS) climbed 10% on Wednesday morning following NVIDIA's $2 billion investment announcement. The strategic partnership targets hyperscale AI cloud infrastructure, with Nebius planning to […]
  • Pound Slips as Safe-Haven Dollar Gains DemandPound Slips as Safe-Haven Dollar Gains Demand Key Moments GBP/USD trades near 1.3390 in Asian hours, extending its decline for a second consecutive session as the US Dollar benefits from risk aversion linked to Middle East tensions. UK unemployment edges up to 5% over the […]
  • Forex Market: USD/CHF daily forecastForex Market: USD/CHF daily forecast During yesterday’s trading session USD/CHF traded within the range of 0.8721-0.8780 and closed at 0.8742.At 8:27 GMT today USD/CHF was losing 0.03% for the day to trade at 0.8740. The pair touched a daily low at 0.8734 at 7:45 […]
  • Major Currency Pairs: Support and Resistance Levels for November 24th 2016Major Currency Pairs: Support and Resistance Levels for November 24th 2016 USD/CHFR1 – 1.0177 R2 – 1.0186 R3 (Range Resistance - Sell) – 1.0194 R4 (Long Breakout) – 1.0221 R5 (Breakout Target 1) - 1.0252 R6 (Breakout Target 2) - 1.0265S1 – 1.0159 S2 – 1.0150 S3 (Range Support - Buy) – 1.0142 S4 […]